Short run AC curve

Short run is a period of time in which at least one factor of production is fixed. In the
short run, firms AC is a U-shaped curve.
Average fixed cost is the fixed cost per unit of output. When output increases firms
spread its total fixed cost over a larger amount of out. Therefore, as output expands
in the short run, the average fixed cost declines. Average fixed cost curve turns
downward.
Average variable cost is the total variable cost per unit of output. In the short run,
AVC curve is U-shaped curve. Initially, firm may use division of labour to increase
output, AVC will decline due to the law of increasing return which occurs when
marginal physical product increase as more variable factors are added into fixed
factor. AVC reaches its minimum and then starting to increase. As firm add more
variable factors into fixed factors, the production becomes too crowded which lead
to the setting in of diminishing return. Output is producing at a decrease rate. Hence
AVC goes up.
Average total cost is the total cost per unit of output. ATC curve combines the AFC
and AVC. Initially, as output expands, both AFC and AVC decrease, so do ATC. ATC
declines and reaches its minimum and then rising again because a rise in AVC
exceed a fall in AFC.